You are considering investing in a company that cultivates abalone for sale to local restaurants. Use...

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Finance

You are considering investing in a company that cultivatesabalone for sale to local restaurants. Use the followinginformation:
Sales price per abalone = $44.80
Variable costs per abalone = $11.35
Fixed costs per year = $506,000
Depreciation per year = $104,000
Tax rate = 23%
The discount rate for the company is 15 percent, the initialinvestment in equipment is $936,000, and the projectâ€™s economiclife is 9 years. Assume the equipment is depreciated on astraight-line basis over the projectâ€™s life and has no salvagevalue.
a.
What is the accounting break-even level for the project?(Do not round intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.)
b.
What is the financial break-even level for the project?(Do not round intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.)

Answer & Explanation Solved by verified expert

3.7 Ratings (479 Votes)

Solution aCalculation of Accounting Break even level for the project The formula for calculating the Accounting Break even level is Fixed costs per year Depreciation per year Contribution per unit Where Contribution per unit Sales price per unit Variable costs per unit As per the information given in the question we have Fixed costs per year 506000 Depreciation per year 104000 Sales price per unit 4480 Variable costs per unit 1135 Thus Contribution per unit 4480 1135 3345 Applying the above See Answer

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Sales price per abalone	=	$44.80
Variable costs per abalone	=	$11.35
Fixed costs per year	=	$506,000
Depreciation per year	=	$104,000
Tax rate	=	23%